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From the U.S. Code Online via GPO Access [wais.access.gpo.gov]
[Laws in effect as of January 16, 1996] [Document not affected by Public Laws enacted between
January 16, 1996 and August 28, 1996] [CITE: 26USC1031]
TITLE 26--INTERNAL REVENUE CODE
Subtitle A--Income Taxes
CHAPTER 1--NORMAL TAXES AND SURTAXES
Subchapter O--Gain or Loss on Disposition of Property
PART III--COMMON NONTAXABLE EXCHANGES
Sec. 1031. Exchange of property held for productive use or investment
(a) Nonrecognition of gain or loss from exchanges solely in kind (1) In general
No gain or loss shall be recognized on the exchange of property
held for productive use in a trade or business or for investment if
such property is exchanged solely for property of like kind which is
to be held either for productive use in a trade or business or for
investment.
(2) Exception
This subsection shall not apply to any exchange of--
(A) stock in trade or other property held primarily for sale,
(B) stocks, bonds, or notes,
(C) other securities or evidences of indebtedness or interest,
(D) interests in a partnership,
(E) certificates of trust or beneficial interests, or
(F) choses in action.
For purposes of this section, an interest in a partnership which has
in effect a valid election under section 761(a) to be excluded from
the application of all of subchapter K shall be treated as an
interest in each of the assets of such partnership and not as an
interest in a partnership.
(3) Requirement that property be identified and that exchange be completed not more than 180 days after transfer of exchanged property
For purposes of this subsection, any property received by the
taxpayer shall be treated as property which is not like-kind
property if--
(A) such property is not identified as property to be
received in the exchange on or before the day which is 45 days
after the date on which the taxpayer transfers the property
relinquished in the exchange, or
(B) such property is received after the earlier of--
(i) the day which is 180 days after the date on which
the taxpayer transfers the property relinquished in the
exchange, or
(ii) the due date (determined with regard to extension)
for the transferor's return of the tax imposed by this
chapter for the taxable year in which the transfer of the
relinquished property occurs.
(b) Gain from exchanges not solely in kind
If an exchange would be within the provisions of subsection (a), of
section 1035(a), of section 1036(a), or of section 1037(a), if it were
not for the fact that the property received in exchange consists not
only of property permitted by such provisions to be received without the
recognition of gain, but also of other property or money, then the gain,
if any, to the recipient shall be recognized, but in an amount not in
excess of the sum of such money and the fair market value of such other
property.
(c) Loss from exchanges not solely in kind
If an exchange would be within the provisions of subsection (a), of
section 1035(a), of section 1036(a), or of section 1037(a), if it were
not for the fact that the property received in exchange consists not
only of property permitted by such provisions to be received without the
recognition of gain or loss, but also of other property or money, then
no loss from the exchange shall be recognized.
(d) Basis
If property was acquired on an exchange described in this section,
section 1035(a), section 1036(a), or section 1037(a), then the basis
shall be the same as that of the property exchanged, decreased in the
amount of any money received by the taxpayer and increased in the amount
of gain or decreased in the amount of loss to the taxpayer that was
recognized on such exchange. If the property so acquired consisted in
part of the type of property permitted by this section, section 1035(a),
section 1036(a), or section 1037(a), to be received without the
recognition of gain or loss, and in part of other property, the basis
provided in this subsection shall be allocated between the properties
(other than money) received, and for the purpose of the allocation there
shall be assigned to such other property an amount equivalent to its
fair market value at the date of the exchange. For purposes of this
section, section 1035(a), and section 1036(a), where as part of the
consideration to the taxpayer another party to the exchange assumed a
liability of the taxpayer or acquired from the taxpayer property subject
to a liability, such assumption or acquisition (in the amount of the
liability) shall be considered as money received by the taxpayer on the
exchange.
(e) Exchanges of livestock of different sexes
For purposes of this section, livestock of different sexes are not
property of a like kind.
(f) Special rules for exchanges between related persons
(1) In general
If--
(A) a taxpayer exchanges property with a related person,
(B) there is nonrecognition of gain or loss to the taxpayer
under this section with respect to the exchange of such property
(determined without regard to this subsection), and
(C) before the date 2 years after the date of the last
transfer which was part of such exchange--
(i) the related person disposes of such property, or
(ii) the taxpayer disposes of the property received in
the exchange from the related person which was of like kind
to the property transferred by the taxpayer,
there shall be no nonrecognition of gain or loss under this section
to the taxpayer with respect to such exchange; except that any gain
or loss recognized by the taxpayer by reason of this subsection
shall be taken into account as of the date on which the disposition
referred to in subparagraph (C) occurs.
(2) Certain dispositions not taken into account
For purposes of paragraph (1)(C), there shall not be taken into
account any disposition--
(A) after the earlier of the death of the taxpayer or the
death of the related person,
(B) in a compulsory or involuntary conversion (within the
meaning of section 1033) if the exchange occurred before the
threat or imminence of such conversion, or
(C) with respect to which it is established to the
satisfaction of the Secretary that neither the exchange nor such
disposition had as one of its principal purposes the avoidance
of Federal income tax.
(3) Related person
For purposes of this subsection, the term ``related person''
means any person bearing a relationship to the taxpayer described in
section 267(b) or 707(b)(1).
(4) Treatment of certain transactions
This section shall not apply to any exchange which is part of a
transaction (or series of transactions) structured to avoid the
purposes of this subsection.
(g) Special rule where substantial diminution of risk
(1) In general
If paragraph (2) applies to any property for any period, the
running of the period set forth in subsection (f)(1)(C) with respect
to such property shall be suspended during such period.
(2) Property to which subsection applies
This paragraph shall apply to any property for any period during
which the holder's risk of loss with respect to the property is
substantially diminished by--
(A) the holding of a put with respect to such property,
(B) the holding by another person of a right to acquire such
property, or
(C) a short sale or any other transaction.
(h) Special rule for foreign real property
For purposes of this section, real property located in the United
States and real property located outside the United States are not
property of a like kind.
(Aug. 16, 1954, ch. 736, 68A Stat. 302; Sept. 2, 1958, Pub. L. 85-866,
title I, Sec. 44, 72 Stat. 1641; Sept. 22, 1959, Pub. L. 86-346, title
II, Sec. 201(c)-(e), 73 Stat. 624; Dec. 30, 1969, Pub. L. 91-172, title
II, Sec. 212(c)(1), 83 Stat. 571; July 18, 1984, Pub. L. 98-369, div. A,
title I, Sec. 77(a), 98 Stat. 595; Oct. 22, 1986, Pub. L. 99-514, title
XVIII, Sec. 1805(d), 100 Stat. 2810; Dec. 19, 1989, Pub. L. 101-239,
title VII, Sec. 7601(a), 103 Stat. 2370; Nov. 5, 1990, Pub. L. 101-508,
title XI, Secs. 11701(h), 11703(d)(1), 104 Stat. 1388-508, 1388-517.)
Amendments
1990--Subsec. (a)(2). Pub. L. 101-508, Sec. 11703(d)(1), inserted at
end ``For purposes of this section, an interest in a partnership which
has in effect a valid election under section 761(a) to be excluded from
the application of all of subchapter K shall be treated as an interest
in each of the assets of such partnership and not as an interest in a
partnership.''
Subsec. (f)(3). Pub. L. 101-508, Sec. 11701(h), substituted
``section 267(b) or 707(b)(1)'' for ``section 267(b)''.
1989--Subsecs. (f) to (h). Pub. L. 101-239 added subsecs. (f) to
(h).
1986--Subsec. (a)(3)(A). Pub. L. 99-514 substituted ``on or before
the day'' for ``before the day''.
1984--Subsec. (a). Pub. L. 98-369, Sec. 77(a), in amending subsec.
generally, designated existing provisions as par. (1), substituted ``No
gain or loss shall be recognized on the exchange of property held for
productive use in a trade or business or for investment if such property
is exchanged solely for property of like kind which is to be held either
for productive use in a trade or business or for investment'' for ``No
gain or loss shall be recognized if property held for productive use in
trade or business or for investment (not including stock in trade or
other property held primarily for sale, nor stocks, bonds, notes, choses
in action, certificates of trust or beneficial interest, or other
securities or evidences of indebtedness or interest) is exchanged solely
for property of a like kind to be held either for productive use in
trade or business or for investment'', and added pars. (2) and (3).
1969--Subsec. (e). Pub. L. 91-172 added subsec. (e).
1959--Subsecs. (b) to (d). Pub. L. 86-346 inserted references to
section 1037(a) in subsecs. (b) and (c) and in first two sentences of
subsec. (d).
1958--Subsec. (d). Pub. L. 85-866 inserted in first sentence a comma
between ``exchanged'' and ``decreased'' and ``or decreased in the amount
of loss'', and substituted in second sentence ``subsection'' for
``paragraph''.
Effective Date of 1990 Amendment
Section 11701(h) of Pub. L. 101-508 provided that the amendment made
by that section is effective with respect to transfers after Aug. 3,
1990.
Section 11703(d)(2) of Pub. L. 101-508 provided that: ``The
amendment made by paragraph (1) [amending this section] shall apply to
transfers after July 18, 1984.''
Effective Date of 1989 Amendment
Section 7601(b) of Pub. L. 101-239 provided that:
``(1) In general.--Except as provided in paragraph (2), the
amendments made by this section [amending this section] shall apply to
transfers after July 10, 1989, in taxable years ending after such date.
``(2) Binding contract.--The amendments made by this section shall
not apply to any transfer pursuant to a written binding contract in
effect on July 10, 1989, and at all times thereafter before the
transfer.''
Effective Date of 1986 Amendment
Amendment by Pub. L. 99-514 effective, except as otherwise provided,
as if included in the provisions of the Tax Reform Act of 1984, Pub. L.
98-369, div. A, to which such amendment relates, see section 1881 of
Pub. L. 99-514, set out as a note under section 48 of this title.
Effective Date of 1984 Amendment
Section 77(b) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
``(1) In general.--Except as otherwise provided in this subsection,
the amendment made by subsection (a) [amending this section] shall apply
to transfers made after the date of the enactment of this Act [July 18,
1984] in taxable years ending after such date.
``(2) Binding contract exception for transfer of partnership
interests.--Paragraph (2)(D) of section 1031(a) of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954] (as amended by subsection (a)) shall
not apply in the case of any exchange pursuant to a binding contract in
effect on March 1, 1984, and at all times thereafter before the
exchange.
``(3) Requirement that property be identified within 45 days and
that exchange be completed within 180 days.--Paragraph (3) of section
1031(a) of the Internal Revenue Code of 1986 (as amended by subsection
(a)) shall apply--
``(A) to transfers after the date of the enactment of this Act
[July 18, 1984], and
``(B) to transfers on or before such date of enactment if the
property to be received in the exchange is not received before
January 1, 1987.
In the case of any transfer on or before the date of the enactment of
this Act which the taxpayer treated as part of a like-kind exchange, the
period for assessing any deficiency of tax attributable to the amendment
made by subsection (a) [amending this section] shall not expire before
January 1, 1988.
``(4) Special rule where property identified in binding contract.--
If the property to be received in the exchange is identified in a
binding contract in effect on June 13, 1984, and at all times thereafter
before the transfer, paragraph (3) shall be applied--
``(A) by substituting `January 1, 1989' for `January 1, 1987',
and
``(B) by substituting `January 1, 1990' for `January 1, 1988'.
``(5) Special rule for like-kind exchange of partnership
interests.--Paragraph (2)(D) of section 1031(a) of the Internal Revenue
Code of 1986 (as amended by subsection (a)) shall not apply to any
exchange of an interest as general partner pursuant to a plan of
reorganization of ownership interest under a contract which took effect
on March 29, 1984, and which was executed on or before March 31, 1984,
but only if all the exchanges contemplated by the reorganization plan
are completed on or before December 31, 1984.''
Effective Date of 1969 Amendment
Section 212(c)(2) of Pub. L. 91-172, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ``The amendment
made by paragraph (1) [amending this section] shall apply to taxable
years to which the Internal Revenue Code of 1986 [formerly I.R.C. 1954]
applies.''
Effective Date of 1959 Amendment
Amendment by Pub. L. 86-346 effective for taxable years ending after
Sept. 22, 1959, see section 203 of Pub. L. 86-346, set out as an
Effective Date note under section 1037 of this title.
Effective Date of 1958 Amendment
Amendment by Pub. L. 85-866 applicable to taxable years beginning
after Dec. 31, 1953, and ending after Aug. 16, 1954, see section 1(c)(1)
of Pub. L. 85-866, set out as a note under section 165 of this title.
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A
or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or title XVIII
[Secs. 1800-1899A] of Pub. L. 99-514 require an amendment to any plan,
such plan amendment shall not be required to be made before the first
plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub.
L. 99-514, as amended, set out as a note under section 401 of this
title.
Cross References
Stock for stock of same corporation, see section 1036 of this title.
Section Referred to in Other Sections
This section is referred to in sections 83, 197, 424, 453, 454, 704,
857, 1035, 1036, 1037, 1060, 1245, 1250, 2032A of this title.
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